Roth conversion/withdrawal Question

[jkern]

I currently have a Roth IRA that's been established for greater than 5 years and I'm currently 60. I want to withdraw about $40k from my IRA in 2020. My question is: Can I convert $40k from my IRA to the Roth IRA in 2019 and withdraw the $40k from the Roth in 2020 without penalty? Does the $40k converted in 2019need a 5 year wait period?


thanks

 

[pb4uski]

Since you are over 59 1/2, you don't have to worry about penalties for either a tIRA or a Roth.

 

[jkern]

Since you are over 59 1/2, you don't have to worry about penalties for either a tIRA or a Roth.

Since I'm over 59 1/2, does that mean there are no more 5 year wait periods for any Roths?

 

[Dtail]

Since I'm over 59 1/2, does that mean there are no more 5 year wait periods for any Roths?

See the excellent article below.
https://www.kitces.com/blog/underst...s-for-roth-ira-contributions-and-conversions/

 

[kaneohe]

from the fairmark.com site by kawill

Re: Roth IRA Rules - Table Approach
Posted by: KAWill (IP Logged)
Date: October 14, 2010 11:57PM

Roth IRA Distribution Table

UNDER AGE 59.5
FIVE YEAR CONVERSION HOLDING PERIOD NOT MET

Contributions: Tax-No ;Penalty-No
Conversions: Tax-No; Penalty-Yes (Taxable Portion)
Conversions: Tax-No ;Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes; Penalty-Yes

UNDER AGE 59.5
FIVE YEAR CONVERSION HOLDING PERIOD MET

Contributions: Tax-No; Penalty-No
Conversions: Tax-No ;Penalty-No (Taxable Portion)
Conversions: Tax-No; Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes; Penalty-Yes

OVER AGE 59.5
LESS THAN FIVE YEARS SINCE OPENING FIRST ROTH IRA

Contributions: Tax-No; Penalty-No
Conversions: Tax-No; Penalty-No (Taxable Portion)
Conversions: Tax-No; Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes; Penalty-No

OVER AGE 59.5
FIVE YEARS OR MORE SINCE OPENING FIRST ROTH IRA

All Distributions Are Qualified

No Taxes
No Penalties

Note: The table is not applicable to timely distributions of excess contributions or return of regular contributions.

 

[whaleknives]

Or, you can look at Figure 2-1 in IRS Publication 590-B (2017), Distributions from Individual Retirement Arrangements (IRAs). A Roth distribution is qualified (not subject to tax or penalty) if the answer to both these questions is Yes:

1. Has it been at least 5 years from the beginning of the year for which you first set up and contributed to a Roth IRA? (emphasis added)
2. Were you at least 59-1/2 years old at the time of the distribution?

Multiple 5-year clocks only apply if you're less than 59-1/2.

 

[jkern]

Thanks for the responses. I'm still a little confused on one item. If a Roth conversion is done after 59 1/2, is there a 5 year wait period to access the earnings tax free?

 

[kaneohe]

Thanks for the responses. I'm still a little confused on one item. If a Roth conversion is done after 59 1/2, is there a 5 year wait period to access the earnings tax free?

OVER AGE 59.5
LESS THAN FIVE YEARS SINCE OPENING FIRST ROTH IRA

Earnings: Tax-Yes; Penalty-No

OVER AGE 59.5
FIVE YEARS OR MORE SINCE OPENING FIRST ROTH IRA

All Distributions Are Qualified

No Taxes
No Penalties

 

[Sunset]

As long as you are over 59.5 and had any Roth in your lifetime for over 5 years (not necessarily the one you convert the money into), then withdrawals of money is tax free and penalty free.

 

[gcgang]

I currently have a Roth IRA that's been established for greater than 5 years and I'm currently 60. I want to withdraw about $40k from my IRA in 2020. My question is: Can I convert $40k from my IRA to the Roth IRA in 2019 and withdraw the $40k from the Roth in 2020 without penalty? Does the $40k converted in 2019need a 5 year wait period?


thanks

I think the answer is no wait, no penalty for you.

Anticipated (2019 Y > 2020 Y)?

Why would you withdraw and incur taxable income in 2019 instead of 2020?

 

[jkern]

I messed up and din't ask the correct question. I really wanted to know if the earnings were tax free if the 5 year wait period wasn't met on conversions.

 

[Alan]

I messed up and din't ask the correct question. I really wanted to know if the earnings were tax free if the 5 year wait period wasn't met on conversions.

Yes.


Been there and done that, and continue to do so. Living in the UK the double tax treaty with the US allows lump sum transfers between retirement accounts to be only taxable in the country where the accounts reside, so to minimize taxes I do a lump sum IRA to Roth conversion every year while also taking some distributions from the Roth which is tax free in both countries. Only 4 years left before all of our IRA money is converted, just before we start collecting UK and US SS.

 

[kaneohe]

I messed up and din't ask the correct question. I really wanted to know if the earnings were tax free if the 5 year wait period wasn't met on conversions.

As the table mentioned previously shows, there are 2 types of 5 yr clocks.
If you are < 59.5 y.o., the clock(s) are 5 yr clocks on each Roth conversion.
Once you are > 59.5 y.o., the only 5 yr clock that is relevant is the age of your 1st Roth ever opened.

 

[rothlev]

You’ve not met the 5-year rule but you are over age 59 ½: Earnings withdrawn will be included as income and subject to income taxes but will not be subject to a 10% penalty tax.

Conversions have. a new 5 year rule, separate from regular roth contributions.

 

[jkern]

Thanks everyone.

 

[kaneohe]

You’ve not met the 5-year rule but you are over age 59 ½: Earnings withdrawn will be included as income and subject to income taxes but will not be subject to a 10% penalty tax.

Conversions have. a new 5 year rule, separate from regular roth contributions.

OP is > 59.5. OP's OP states that Roth is > 5 yrs old. Since OP is > 59.5,
conversion age doesn't matter anymore, only age of 1st Roth account.
All withdrawals are now qualified......no taxes/no penalty.

 

[Clone]

I feel like maybe there is a missing piece to this question-

Can I convert $40k from my IRA to the Roth IRA in 2019 and withdraw the $40k from the Roth in 2020 without penalty?

If the real question is- Can I withdraw the funds from the ROTH and not have to pay taxes on the gains, that is true.


But you will pay income taxes on the entire amount when you convert it to a ROTH. The backdoor Roth is not a path to eliminate paying income tax on the funds in a traditional IRA.



Any gains while the money is in the Roth would be tax free.

 

[Sunset]

I suspect OP has high low income in 2019 so can add the conversion to his tax bill, but will have high income in 2020 and a need for extra $$$, so wants a tax free way to get extra money in 2020 (vs take it from the IRA).

 

[rothlev]

example:

Sally is 58. She opens her first ever Roth and contributes $6,000 and converts $50,000 from a Traditional IRA to this Roth IRA. Two years later, Sally reaches age 60 with a Roth IRA worth $60,000. She cashes it all in to buy a motor home.

Sally pays no tax on her $6,000 of contributions and pays no income tax or 10% penalty tax on her $50,000 from conversions because she already paid tax at the time she converted and has no penalty since she is over age 59 ½.]She only pays income tax on the $4,000 attributable to earnings because she has not met the 5-year rule.

If Sally had only withdrawn $56,000, none of it would be taxable, and the earnings could be left for another 3 years when she could have withdrawn it tax-free.

 

[gauss]

Under current Federal law, all Qualifed Distributions from Roths are tax-free and penalty free.

To be Qualified:
#1) You must be 59 1/2
and
#2) Your first Roth IRA must have been setup at least five years ago.

Non-qualified distributions are more complicated, but if you meet the Qualified criteria above, you don't need to worry about the non-qualified complications.

-gauss

 

[kaneohe]

example:

Sally is 58. She opens her first ever Roth and contributes $6,000 and converts $50,000 from a Traditional IRA to this Roth IRA. Two years later, Sally reaches age 60 with a Roth IRA worth $60,000. She cashes it all in to buy a motor home.

Sally pays no tax on her $6,000 of contributions and pays no income tax or 10% penalty tax on her $50,000 from conversions because she already paid tax at the time she converted and has no penalty since she is over age 59 ½.]She only pays income tax on the $4,000 attributable to earnings because she has not met the 5-year rule.

.............................................

jkern (OP)
Roth conversion/withdrawal Question
I currently have a Roth IRA that's been established for greater than 5 years and I'm currently 60.

different situation for OP; different answer;